Debates between politicians at the federal, provincial and
municipal levels about who can best lower taxes are neither new nor
surprising. Ever since the California debate in the 1980's over
proposition 13, it has been an ongoing part of our political
reality. If one stands back from the partisan bluster on both sides
some realities about the dynamic of the debate and its role in real
public policy outcomes are apparent.
Often, tax cuts for one segment of the population are
facilitated by increases in user fees or special levies on other
parts of the population or business community.
Tax cuts are often made possible by exogenous economic and
demand cycle forces that generate higher revenues from lower tax
rates. Rarely is a jurisdiction so cut off from cyclical growth
forces that tax cut are only made possible by internal
If tax cuts are not accompanied with concurrent changes in the
structure of public sector service delivery, when the economic
growth cycle diminishes, public sector costs create pressures for
either increased deficits or tax increases. The Republic of
Ireland, whose multi-year Celtic Tiger moment appears to be
passing, did little during the growth period to reform the heavily
unionised nature of its public, private and semi-public
infrastructure. In fact, Ireland's "Social Contract"
mandates continued public sector pay increases which generate
similar pressures in other sectors going forward. Barring a sharp
upturn in what is now a very stagnant growth curve; Irish politics
will be awash in tough choices. The low tax rates which helped fuel
the "Celtic Tiger" moment, helped in part by European
community cohesion fund investments, appear to have had no
structural benefit. Also, poverty and illiteracy rates were not
sizably diminished during the decade of High growth.
Special purpose taxes often fail to achieve their purpose - as
is the case with targeted tax cuts. RRSP allowances do not help
modest income Canadians save more for retirement - and GST
consumption taxes do not in and of themselves discourage
The use of the tax system to achieve social or behavioral
outcomes is traditional and a large part of the political fracas
most of the time. Our overly thick tax act has a host of rapid
write offs, special deductions, tax credits and allowances aimed at
achieving precise outcomes. Many have been there for years, and
their actual impact is hard to measure, and often, not measured at
Tax has become, in the political or economic debate, a proxy
for competing views of society. Less tax equals freer economy; more
tax the opposite, etc. Often tax changes, like the ill-advised
change imposed on income trusts some time ago, seem broadly
capricious...with unclear rationales and no substantive evidence of
anything like the associated public purposes.
Political and campaign debates tend to be about tactical tax
decisions (Joe Clark's 18 cents a gallon, the promise to do
away with the GST (Jean Chrétien), or the promise to lower
it (Stephen Harper). But they are rarely about the broad
philosophical template tax policy should occupy.
In essence, tax and fiscal policy sets the framework for
investment, regulation, economic growth and social and community
and individual choices. A framework is not a causal force -
decisions made only for tax driven reasons are not good decisions -
and rarely economic in the long term. But comparative tax
frameworks are a part of the decision tree companies and
individuals address and weigh.
So the coming debate on various forms of carbon or green
related taxes will not only be about the best way to shape a
pro-green public policy with taxes (and if taxes are in any way the
best instrument to use here) but what comparative economic
framework such taxes may establish for Canadian companies, farms,
small businesses and consumers - especially those in rural areas
where public transit is non existent.
Taxes are primarily to raise revenue for the work of the crown
(government). When they are used to encourage or discourage certain
behaviours, they are blunt instruments and often produce deeply
distorted or unintended outcomes.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
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